When shareholders of JP Morgan were seeking to separate the position of chairman and CEO, Broadridge announced that it would no longer provide running tallies of the vote to the shareholder proponent of the resolution. We discussed the incident here. A monopoly on the tallies can have advantages. Corporations will know which proposals or directors are in trouble and can move resources around to meet the challenges. (See the discussion here). There are, however, other ways that the information can be used.
In Red Oak Fund, L.P. v. Digirad Corp., C.A. No. 8559-VCN (Del. Ch. Aug. 5, 2013), plaintiffs challenged the results of a contested election for directors. Among other things, plaintiffs alleged disclosure violations. The opinion characterized one set of allegations this way:
- Defendants repeatedly reported non-public preliminary totals of the voting which Defendants knew to be inaccurate because of their having allowed the counting of treasury shares that should not have been voted. These numbers supported management’s assertion that the election would be "not even close.”
Whatever the truth (these are only allegations), the case illustrates some of the consequences of allowing issuers to have a monopoly on running tallies. They can decide to publicize the information when it is in their interest, resulting in a competitive advantage in any contest. There is also at least a risk that some companies will misstate running tallies in an effort to influence the outcome of an election.
The only way to insure a balanced and accurate use of the information is to provide it to both sides in a contest (or to require continuous disclosure by a neutral party). Allowing only one side to have the information conflicts with the regulatory goal of impartiality.